Credit Unions TKO bank MBL Litigation

On Tuesday, a Federal District Court in Virginia dismissed a lawsuit brought with much righteous indignation and fanfare by the Independent Bankers Association. (Indep. Cmty. Bankers of Am. v. Nat’l Credit Union Admin., No. 1:16CV1141 (JCC/TCB), 2017 WL 346136, (E.D. Va. Jan. 24, 2017). They worked themselves into a foam-mouthed frenzy following the promulgation of regulations by NCUA, giving credit unions greater flexibility to make MBL loans without first seeking waivers from the agency. Although the case was dismissed on technical grounds, make no mistake about it, if this was a boxing match it would have been a TKO. This was about as complete a victory as the NCUA could have gotten in the first round of what could be extensive litigation ultimately involving not only NCUA’s authority to promulgate changes to its MBL regulations, but also its authority to promulgate changes to field of membership requirements.

In 2003, NCUA amended its regulations. It allowed credit unions to purchase nonmember loan participations without counting such participations against the MBL cap, provided that they get NCUA’s approval to do so. In its 2016 revisions to the MBL rules, NCUA decided that credit unions no longer have to seek prior approval before acquiring nonmember participation interests. The clux of the IBA’s complaint was that credit unions never should have been given the authority with or without NCUA’s approval. The court ruled that the bankers could have brought their complaint more than a decade ago, and their decision not to do so meant that the six year statute of limitations to bring such action had expired long ago.

But wait there is more! In a typical lawsuit it is fairly easy to show that a plaintiff has suffered an injury. For example, if I was hit by a car this morning on my way to work no one would question my right to sue the driver if he was speeding. But in the land of Association litigation standing is a crucial issue. Too broad a view of what constitutes harm makes it easier for Associations like the IBA to sue over credit union laws and regulations. So, I was pleasantly surprised that the judge also concluded that the bankers had not shown that they were in fact harmed by NCUA’s MBL changes. This passage is worth quoting at length because it could be useful in challenging banker’s standings in subsequent lawsuits.

It is not clear at this point that Defendant’s 2016 regulation will result in increased competition against Plaintiff’s member banks. Credit unions were able to compete with banks in the commercial loan arena before the 2016 Rule. Indeed, Plaintiff represents that they have done so vigorously. The 2016 Rule on its face does not permit additional competition. All it does is dispense with the requirement that, after taking on a certain amount of member business loans, a credit union obtain permission to purchase an additional interest in a nonmember business loan.

Finally, the court noted that even if it was to rule on the merits of the case, the bankers would still loose. NCUA did not abuse its discretion in amending its MBL regulations but was instead acting within its authority to interoperate an ambiguous statue.